Re: Retiring on the lottery

From: Jeff Salisbury <jeff.salisbury@xmission.com>
Subject: Re: Retiring on the lottery
Date: Tue, 23 Nov 1999 10:52:50 -0700

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> Nancy Slator <neslator@amherst.edu> wrote:
> >      Stephen Brobeck, the consumer group's executive director, said
> > banks and brokerage
> >  firms must take some of the blame for the fact that many Americans
> > don't realize there are
> >  ways to invest profitably even small amounts of money, such as in
> > savings bonds or mutual
> >  funds.
> 
> Are there really ways for a 20 year old with $50 to get 9 percent
> interest?

Nancy,

Absolutely there are ways for a 20 year old with $50 to get a 9%
return!  Maybe not guaranteed 9% interest...  However, historically
investments in equities have returned between 10-11% annually.  Also,
there are scads of mutual funds out there that will accept $50 per month
- -- particularly in an IRA.  As an example, if a 20 year old invests $50
/ month until they are age 65 and they average 11% return each year,
they will have $248,673.  If, as they get older and earn more, they
increase their savings rate (even a little bit each year), they will do
much, much better.  

There are two keys to winning this game:

1. Start saving and investing something now.  Even if it seems too
piddily to bother.  It's the habit of saving that is important.

2. Increase your savings rate whenever you can until you are saving at
least 10% of your income.  Ususally this is the easiest to do when you
get a salary increase associated with an annual raise, a promotion, or a
change of jobs.  Set a goal to increase your saving rate 1-5% each year
until you've reached 10%.  It is the habit of increasing your saving
rate that is important.

I'm not speaking some theoretical thing here.  Rather, I speak from the
personal experience of starting my savings in my 20's (I'm 36 now) and
doing items #1 and #2.  I still remember tracking down a mutual fund
that would accept my meager $50/month.  I felt a little intimidated at
the time, but now over a decade later I'm amazed at the results...

Regards,

Jeff

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